WEBVTT - Cathie Wood Talks ETFs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Let's talk more about this,

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<v Speaker 1>not ETF, with Kathy Woods. She is CEO and CIO

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<v Speaker 1>of ARC invest Kathy, great to have you with us.

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<v Speaker 1>We'll get into the ETF conversation, but let's start with

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<v Speaker 1>your holdings in your venture fund, because I'm taking a look,

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<v Speaker 1>it looks like your second biggest holding is SpaceX. Of course,

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<v Speaker 1>as we know, that is a private company, one of

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<v Speaker 1>Elon Musk's company right now in talks to potentially merge

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<v Speaker 1>with XAI and in talks potentially to IPO later this year.

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<v Speaker 1>I mean, as you digest these news events, how are

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<v Speaker 1>you feeling about your current slice in SpaceX, which I

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<v Speaker 1>believe is about seven and a half percent of this fund.

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<v Speaker 2>Yes, we're feeling great, especially the rumors are we have

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<v Speaker 2>no idea if it will go out at one point

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<v Speaker 2>five trillion again rumors, rumors, but SpaceX has big ideas

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<v Speaker 2>orbital data centers being the latest an EXSAI, which we

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<v Speaker 2>also own in ARKVX, is going to become a part

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<v Speaker 2>of this ecosystem. We do believe, and I think we're

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<v Speaker 2>getting more information now that this is becoming more and

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<v Speaker 2>more likely.

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<v Speaker 3>So when SpaceX does make its debut on the public

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<v Speaker 3>markets when it lists, when it IPOs, what does that

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<v Speaker 3>do to your fund? How do you respond to that?

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<v Speaker 2>Yes, the wonderful thing about ARKVX and Interval funds generally,

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<v Speaker 2>in terms of the way we've constructed this one, is

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<v Speaker 2>that it's twenty percent roughly twenty percent public eighty percent private.

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<v Speaker 2>And when SpaceX goes, we will obviously bump up the

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<v Speaker 2>public position, but we don't have to sell it now.

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<v Speaker 2>It would be unusual if all of these names, SpaceX

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<v Speaker 2>and thropic XAI, if they all were to go public. Yes,

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<v Speaker 2>we would want to diversify into more private names. We

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<v Speaker 2>don't have to sell right away now. The other things

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<v Speaker 2>that our companies really like is that they can see

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<v Speaker 2>we have thirty billion dollars of assets under management, and

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<v Speaker 2>most of those are in the public equity market. So

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<v Speaker 2>we will be feeding these names into our ETFs as

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<v Speaker 2>time goes on.

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<v Speaker 4>So, Kathy, let's talk about this conundrum.

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<v Speaker 1>Right.

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<v Speaker 4>This is one of the most fascinating topics to me

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<v Speaker 4>that I'm writing about. You've got all these stocks, you

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<v Speaker 4>have five hundred million. Meanwhile, there's been three tfs that

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<v Speaker 4>have sort of I don't know, we'll called bend the

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<v Speaker 4>rules or whatever. But they've added privates into their funds.

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<v Speaker 4>XOVR immediately one point five billion a crane shares ETF

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<v Speaker 4>has to privates and then ron B added twenty two

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<v Speaker 4>percent of SpaceX and immediately assets jump fifty percent in

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<v Speaker 4>a week. Clearly the demand is to get this in

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<v Speaker 4>the ETF format, but it's not the right format. How

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<v Speaker 4>is this going to play out?

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<v Speaker 2>It's going to be very interesting, Eric, Thank you for

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<v Speaker 2>doing the research on this, and this space is moving

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<v Speaker 2>very quickly. The reason we chose the interval fund format

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<v Speaker 2>was we could have more than fifteen percent of our

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<v Speaker 2>fund in ill liquid assets. Now it may be that

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<v Speaker 2>the definition of ill liquid is changing.

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<v Speaker 5>I know.

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<v Speaker 2>We actually have gone to some of our private companies,

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<v Speaker 2>the ones in the interval fund saying hey, we'd love

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<v Speaker 2>to add you into our ETFs because we think this

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<v Speaker 2>is such an important story. All we do is focus

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<v Speaker 2>on disrupt of innovation. You are one of the biggest disruptors,

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<v Speaker 2>let's just say SpaceX, and what we found over time

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<v Speaker 2>is that they have been reticent. So something is changing here, Eric,

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<v Speaker 2>and it would be very interesting to get to the

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<v Speaker 2>bottom of it. The SEC, of course, is deregulating, so

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<v Speaker 2>that could be part of it. Secondary markets are beginning

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<v Speaker 2>to grow, meaning private shairs on secondary markets, so there's

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<v Speaker 2>access there. So maybe this definition of ill liquid or

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<v Speaker 2>less liquid is changing here.

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<v Speaker 1>Yeah. Our understanding and Bloomberg Intelligences understanding, Kathy, is that

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<v Speaker 1>basically Barren classified their SpaceX holdings as less liquid rather

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<v Speaker 1>than e liquid. As we were talking about, we're learning

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<v Speaker 1>that that comes from the issuer rather than the SEC.

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<v Speaker 1>But you also make another interesting point when it comes

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<v Speaker 1>to the private companies themselves maybe being a little bit

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<v Speaker 1>reticent to be in a vehicle such as an ETF.

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<v Speaker 1>Of course, we talk about it from the issuer perspective

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<v Speaker 1>all the time, so interesting to hear it from the

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<v Speaker 1>perspective of the companies. But you mentioned that, you know,

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<v Speaker 1>when it comes to going ahead of that fifteen percent

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<v Speaker 1>cap in an ETF, that that's not something that you

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<v Speaker 1>necessarily want to do. But have you thought about adding

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<v Speaker 1>perhaps less than that, you know, in the realm of

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<v Speaker 1>five to ten percent into an ETF.

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<v Speaker 2>Yes, we certainly have thought about it, so much so

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<v Speaker 2>that we've gone to the companies and as I said,

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<v Speaker 2>there at least when we went to these companies, there

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<v Speaker 2>was some reticence because they're in the worst case, let's

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<v Speaker 2>just say black Swan, the public markets go down dramatically.

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<v Speaker 2>These private positions are not marked to market every day,

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<v Speaker 2>they could end up easily above fifteen percent, and then

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<v Speaker 2>what would a fun be faced doing trying to find

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<v Speaker 2>a secondary market. Now, maybe the secondary markets are becoming

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<v Speaker 2>more liquid themselves. They're much more liquid today than they

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<v Speaker 2>were when they first started, maybe five, six, seven years ago.

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<v Speaker 2>So we've been, i would say, from a compliance point

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<v Speaker 2>of view, very careful. And then you know, our market

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<v Speaker 2>makers are also trying to figure out what to do

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<v Speaker 2>with this. How do they price in real time when

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<v Speaker 2>at any minute something crazy could happen coming from one

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<v Speaker 2>of these private companies. So there are some ecosystem challenges here.

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<v Speaker 3>Some ecosystem challenges, and it's something that we will be

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<v Speaker 3>watching for certainly. It's an involving story. Kathy, I do

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<v Speaker 3>want to get your take on what a lot of

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<v Speaker 3>people are calling the debasement trade, the effort to diversify

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<v Speaker 3>beyond the US dollar and US dollar assets, moving to

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<v Speaker 3>other assets like precious metal, specifically as a hedge against

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<v Speaker 3>the dollar. What's different this time around from what we

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<v Speaker 3>saw last year is the crypto is not part of this.

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<v Speaker 3>It's not getting the bid from folks who are looking

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<v Speaker 3>to diversify, who believe in this debasement idea.

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<v Speaker 2>How do you think about that? A couple of thoughts.

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<v Speaker 2>I've been writing a lot about it recently. I think

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<v Speaker 2>if you look over time, if you look for the

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<v Speaker 2>last five years and you do a correlation between gold

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<v Speaker 2>and bitcoin, you'll find very little correlation at all. What

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<v Speaker 2>you will see if you look back a little further,

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<v Speaker 2>the last two major cycles for bitcoin were preceded by

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<v Speaker 2>the gold price increasing first. Now, I think, what's going

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<v Speaker 2>on This so called debasement trade, if I can just

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<v Speaker 2>back up a little bit, I think is misplaced, And

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<v Speaker 2>especially when we think about the dollar, if you put

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<v Speaker 2>the dollar into perspective, you will see that over the

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<v Speaker 2>years and in recent years, it's toward the higher end

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<v Speaker 2>of its range against other currencies. And we think that

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<v Speaker 2>the combination of deregulation here in the United States, big

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<v Speaker 2>tax changes, especially for corporations, and very business and capital

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<v Speaker 2>friendly policies here in the United States. We think because

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<v Speaker 2>of those, the returns on invested capital in the United

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<v Speaker 2>States are going to go up relative to those elsewhere

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<v Speaker 2>in the world. And this we think is because trump Eanomics,

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<v Speaker 2>if you want to call it, that is like Reaganomics

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<v Speaker 2>on steroids. If you look at what happened to the

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<v Speaker 2>dollar under Reagan, it doubled, it nearly doubled, so much

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<v Speaker 2>so and so quickly that we ended up in the

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<v Speaker 2>Plaza and Louver Accords to try and get it down.

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<v Speaker 2>So I think it's a little misplaced.

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<v Speaker 3>Kathy. We had Todd soone, thank you for explaining that.

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<v Speaker 3>By the way, we had Todstone of Strutigis on with

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<v Speaker 3>us last week and he was talking about the key

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<v Speaker 3>man risk idea for funds that are tightly tied to

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<v Speaker 3>their star managers. And you're nothing of not a star manager.

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<v Speaker 3>Take a listen to what Todd said.

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<v Speaker 5>Think of arc. Kathy would is the arc. She's the

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<v Speaker 5>face of that company. What happens when Kathy says, you know,

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<v Speaker 5>I'm moving on or whatever it might be. This is

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<v Speaker 5>gonna be really interesting over the next thirty years of

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<v Speaker 5>all these established players coming into the ETF market and

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<v Speaker 5>you're gonna lose these key man key woman risk up there.

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<v Speaker 3>Key woman risk, I'm just curious about the state of

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<v Speaker 3>your succession planning over at ARC invest. If one day

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<v Speaker 3>you want to move on to do something.

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<v Speaker 2>Else, oh my goodness, I can't imagine that day. Let's

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<v Speaker 2>just say that to start, But we have a very

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<v Speaker 2>firm succession plan here the way we've set up the

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<v Speaker 2>firm with directors of research, chief futurists, analyst research associates,

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<v Speaker 2>and really the equivalent of investment committees for each of

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<v Speaker 2>our funds. I think any due diligence effort would look

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<v Speaker 2>at what we've done here at ARC and be pretty

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<v Speaker 2>reassured by it.

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<v Speaker 1>All right, Kathy, that's a good place to leave it.

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<v Speaker 1>Really appreciate you taking the time for us on our

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<v Speaker 1>relaunch day. That is Kathy Wood of ARC Invest. And

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<v Speaker 1>you can read all about this drill down plus the

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